ACE may put cash in airline
Air Canada parent ACE Aviation Holdings Inc. could inject as much as $200 million into the country’s largest airline to help it avert a cash crunch, according to a source familiar with the situation.
Battered by falling ticket sales amid a weak economy, Air Canada is struggling to avoid being dragged into its second bankruptcy protection filing in less than six years.
Air Canada lost $400 million in the first quarter and is facing $570 million in debt payments and $617 million in pension funding requirements over the next year, according to analysts’ estimates.
ACE has not indicated publicly that it would give Air Canada a lifeline, but ACE chief executive Robert Milton is said now to be open to the idea after plans to wind up ACE without providing help to Air Canada ran into shareholder opposition earlier this year.
The plan called for ACE to spend some of its $811 million in cash to buy back debt and preferred shares, while distributing its 75 per cent stake in Air Canada to shareholders.
Recent financial statements show that ACE has about $377 million in cash left on its balance sheet at the end of March, but a source familiar with the situation said only about $150 million to $200 million of the cash would likely be available to prop up Air Canada.
An ACE spokesperson declined to comment.
But any effort to assist Air Canada financially could run into opposition from activist shareholder West Face Capital Inc., a Toronto money manager whose CEO, Greg Boland, has been nominated to ACE’s board of directors in an apparent bid to head off a shareholder revolt.
West Face owns 14.7 per cent of ACE’s variable voting shares, according to documents filed with regulators.
Boland opposed ACE’s windup plans earlier this year, saying there were better uses for ACE’s cash payday loan. He also called for the replacement of Milton and ACE’s board of directors.
Boland has said ACE should provide support to Air Canada in a bid to improve its fortunes and lift its falling stock price but has also suggested the support should come in the form of guidance as opposed to a cash injection.
Boland declined to provide further comment yesterday.
Meanwhile, ACE has taken steps to reduce "dramatically" how much it spends on executive compensation in recognition of the fact the holding company’s days are numbered.
ACE said in regulatory filings that it has decided to make Milton and other key executive consultants in a bid to save about $4 million annually in salaries and other compensation. The changes took effect last month.
Milton and the other ACE executives will retain their titles but the change in employment status has triggered the payment of severance to the executives.
In Milton’s case, he is entitled to receive $7.3 million in severance, which he elected to take in the form of ACE shares. The shares are worth $4.1 million, which is roughly equivalent to what Milton would have received in cash after taxes.
Milton’s total compensation for 2008 was just over $6.5 million, including more than $5 million worth of incentive payments.
He also was paid a second instalment of $5 million in incentives in late February, according to the filings.
The filings revealed former Air Canada CEO Montie Brewer got severance of $1.6 million after Calin Rovinescu replaced him April 1.
Air Canada shares closed at $1.41, up two cents, yesterday on the Toronto Stock Exchange. ACE stock, at $5.35, was unchanged
Filed under: money by Specialist